Will Liew rise on the back of Battersea?

By Khairie Hisyam

Former SP Setia general Liew Kee Sin’s proposed special purpose acquisition company (Spac) listing is exciting, though it raises concerns of how his new outfit would hurt the existing Eco World company’s prospects. In this part of the series we look at other concerns on his latest venture — can Liew have his cake and eat it too?

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Eco World Development Group Bhd’s announcement last week on its intention to subscribe to director Liew Kee Sin’s proposed property Spac listing raised eyebrows, among others, because of its apparently early timing.

“It’s just intention to subscribe, isn’t it,” said one corporate observer to KiniBiz, referring to the essence of Eco World’s announcement.

At publishing time, no draft prospectus had been published on the Securities Commission (SC)’s website.

However, while Bursa Malaysia’s listing requirements compels companies to disclose all relevant information and updates to ensure informed investing decisions, there is an exception under Chapter 9, which allows for temporary withholding of information for various reasons, including if the relevant facts are “in a state of flux and a more appropriate moment for disclosure is imminent”.

That said, the exception is conditional upon maintaining absolute confidentiality and, should the withheld information become generally known, there must be an immediate announcement to the stock exchange, according to the listing requirements.

In that context Eco World’s decision to make the announcement is understandable. Prior to last week’s announcement, talk of Liew pursuing a Spac listing had been circulating in the market rather strongly.

However earlier KiniBiz queries on the rumour to Liew were unanswered.

Timing notwithstanding, Liew’s Spac — called Eco World International (EWI) — has some way to go before the Bursa Malaysia debut gong is sounded.

Qualifying a property Spac

Should Liew’s proposed blank-cheque initial public offering (IPO) get the SC’s approval, an interesting aspect for scrutiny would be the entity’s definition of a qualifying acquisition (QA).

In a nutshell, a QA would turn a Spac into a regular listed company with an identifiable business — any such acquisition requires the SC’s approval — and must be completed in a specific timeframe, normally within 36 months from IPO.

However the QA must be in-line with the definition of such an acquisition set out in the Spac’s prospectus. This means that in the interest of consistency, once a QA is defined a Spac cannot pursue an acquisition target that does not conform to this definition even though the target matches its sector.

In Liew’s proposed EWI listing, the emerging question is what would qualify as a QA. According to SC Equity Guidelines, a QA must, among others, result in a Spac having an identifiable core business with majority ownership and management control.

That said, the guidelines provide for an exception if there is management control without majority ownership and if a non-majority stake is consistent with industry regulations and practices. However this may not apply to property-focused Spacs as majority ownership is not unusual for listed property developers.

Analysts expect a 1.2-acre land in Sydney, acquired by Eco World’s major shareholder in May and subsequently offered to the company at the same purchase price, to be EWI’s first acquisition after listing.

Given the value of the Sydney land — RM84.7 million — there is certainly much room for simultaneous purchases as Liew’s proposed Spac is eyeing some RM1.9 billion in proceeds. Of that amount, 90% needs to be placed in a trust account upon listing and 80% of the trust account needs to be used for the QA transaction.

This means if the proposed EWI listing does raise RM1.9 billion in IPO proceeds, it would have some RM1.37 billion to spend on its QA, though how it defines its QA remains to be seen.

Will a property Spac work?

However, a property-focused Spac is unprecedented in Malaysia, which had only seen oil and gas (O&G) Spacs thus far.

The emerging question is if the property sector can sustain the Spac model. This comes back to the question of what would qualify as a QA for such a Spac — much is still unclear on this front.

Notably Spac players previously opined to KiniBiz that outside of the O&G sector, returns for Spacs would not be as big and as quick.

However a successful property development business can be lucratively profitable with property management, planning and execution, qualities that Liew is not short of.

Should EWI pass the hurdles of listing and obtaining an SC-approved QA, the resulting business entity would likely thrive if Liew’s reputation and track record is anything to go by.

Various industry observers had previously noted that in SP Setia’s rise to being Malaysia’s top developer, Liew’s leadership had been a significant competitive edge.

“Liew brings ambition, vision, cohesion and a never-say-die attitude to SP Setia and his leadership will be sorely missed,” said CIMB Research in May 2013 when commenting on his impending departure.

On the other hand, however, the same qualities Liew tapped into in driving SP Setia to the top of the Malaysian property food chain will be at hand in his new venture, though it remains to be seen if similar hunger and energy will be present too.

Tempering expectations

Though Liew’s reputation and track record, along with the hard-hitting lineup of directors he has assembled for EWI, presents an encouraging view of EWI’s prospects, the question of returns to investors is a separate question entirely.

In the larger context, Spacs had not had an encouraging returns history for investors.

From 2003 up to the present, the United States had seen some 212 Spac listings raising $26.84 billion (RM87.68 billion) between them. Of this number, 118 had completed a QA while another 20 is still in pursuit. Another 74 Spacs had been liquidated after failing to secure a QA, according to SPACAnalytics.com.

Notably, the annualised returns for the 118 Spacs that have secured a QA is currently at -12.4%, according to SPAC Analytics, while the annualised returns for those still in pursuit is at 2% for those still looking and 1.6% for those that had announced a target.

For the liquidated Spacs, their investors would have seen no gain as the funds returned upon the liquidation of a Spac comes from the trust account, which comprises 90% of the IPO proceeds, net of any taxes and direct expenses incurred by the redistribution.

In the case of EWI, it would likely go into markets where Liew has had previous experience working in. At the helm of SP Setia, Liew tasted success in Singapore, London and Melbourne, meaning these markets may likely be within Liew’s sights.

However operating in these markets have some differences from the Malaysian property market, notably in terms of profit recognition among others.

“The investment in EWI will allow Eco World to gain exposure to overseas property markets without overstretching its balance sheet,” said Maybank last week, adding that this is especially because “most of the overseas accounting rules (e.g. Australia and UK) only allow recognition of property development profits on completion basis.”

In other words, EWI investors may be looking at a somewhat longer time frame for returns on their investments — providing of course that EWI makes it to Bursa Malaysia and successfully completes its QA after that.

Another conflict for Liew?

Prospects aside, Liew’s proposed Spac listing raises the concern of yet another conflict with his existing commitments.

In the previous part of this series here, KiniBiz looked at the potential implications of Liew starting a new venture under the Eco World banner on the existing listed business entity.

With EWI eyeing international property markets, Liew would likely leverage on his track record overseas for the proposed Spac listing — the jewel of that would be the Battersea Power Station redevelopment project, which was said by industry observers to be his “baby”.

However that, along with the fact that Liew is in essence a competitor once his proposed Spac listing happens, would in turn conflict with his current role of chairman of the Battersea project, which is a 40:40:20 joint venture between SP Setia, Sime Darby Bhd and the Employees Provident Fund (EPF).

To put things into perspective, having the Battersea project in his profile is a significant edge for Liew given the significance and scale of the project.

Expected to last up to 15 years, the project boasts a gross development value (GDV) of approximately £8 billion (RM42 billion), though the value may go up to as much as £10 billion (RM52.5 billion).

The total GDV figure alone is impressive for a Malaysian-driven project, dwarfing most listed developers on Bursa Malaysia barring the big property boys.

In comparison, SP Setia’s total ongoing and potential GDV for its land bank comes to RM102 billion, of which roughly RM71 billion is the developer’s portion. Close competitor Mah Sing Group Bhd has some RM66 billion in terms of total potential GDV and unbilled sales.

With Liew set to head a new entity eyeing international property markets, his effective status as competitor to Battersea and its consortium would raise the question of propriety in terms of his extended stay as chairman of the project.

In terms of prestige, the successful revival of such an iconic London landmark after previous failed attempts is a feather in Liew’s cap, especially given early scepticism among critics who doubt whether the SP Setia-Sime Darby-EPF consortium would be successful.

Already the launching of the first two phases of the project saw great success, both seeing take-up rates of 95%. Cumulatively the third phase of the project, which will be launched from end-October onwards, will boast a GDV of RM10.5 bilion — a staggering figure for a single phase by Malaysian standards.

“When we first bought the Battersea Power Station, they asked ‘who are these Malaysians buying’?” remarked Liew to business radio station BFM last month. “There was one guy in London who wrote about us — ‘if you can sell Battersea Power Station, pigs can fly’!”

“But we proved them wrong. We had the resolve to prove them wrong,” added Liew.

Liew had not responded to KiniBiz requests for comment while an emailed query on the potential conflict of interest to Sime Darby group president and chief executive Mohd Bakke Salleh was unanswered.

In response to KiniBiz queries, both SP Setia chairman Zaki Azmi and EPF chief executive officer Shahril Ridza Ridzuan declined to comment.

Will Liew stay on at Battersea?

Notably however Mohd Bakke previously opined to journalists in February that Liew may stay beyond the current appointment which lasts up to September 2015. “Today I am confident that he will continue to be chairman beyond 2015,” said Mohd Bakke then.

On his part, Liew had been vague about the prospect of prolonging his tenure as chairman of the Battersea project.

“My job right now is to ensure everything in Battersea is done to perfection,” said Liew last month when asked by BFM whether he would want to walk away once his term ends. “So come September, it’s up to them (the project’s shareholders) to decide.”

This looming conflict between his EWI vehicle and his role at Battersea comes after previous questions of conflict between his then-position at SP Setia and the emergence of Eco World, to which his close associates and son Tian Xiong are linked.

When Liew announced his end-April exit from SP Setia in January this year, eyebrows were raised at his prolonged stay as chairman of the Battersea Power Station project until September 2015. This was said to be requested by SP Setia chairman Zaki Azmi “to help ensure the smooth and successful implementation of these internationally prominent projects”.

While Liew had previously denied any involvement in the backdoor listing exercise by Eco World through former Focal Aims Holdings Bhd, regulatory filings show that Liew and wife financed the shares acquisition by their son — aged 23 — amounting to slightly more than half of the entire RM230.7 million deal.

Following his last day at SP Setia on April 30, Liew joined the board of Eco World on May 5 as a non-executive director with an indirect stake of 35.05% through the shares held by his son Tian Xiong, an executive director of Eco World.

Notably three days later Eco World announced that Liew senior is no longer a substantial shareholder after he submitted the necessary papers to cease being regarded as such.

In essence Liew already has his feet in two separate developers with links to SP Setia through the Battersea project and his position on Eco World’s board. The context of the inter-relationship is the mass exodus of talent from SP Setia to Eco World — from the board level and top management right down to the front-line staff — which raises the question of whether Eco World is rising at SP Setia’s expense.

A previous research report estimated that some 80% of Eco World’s 350 staff came from SP Setia — an astounding figure to be happening to a prominent property brand.

However SP Setia officials previously argued to KiniBiz that while a sizeable number of long-time staff had exited, a significant number of old-timers remain with the company, outnumbering the ones who had left. “Our projects are still ongoing — nothing has stopped,” said the official who declined to be named.

KiniBiz previously examined the issue in more detail in a three-part series here.

To sum up, Liew’s first obstacle is to get the SC’s approval for his proposed Spac listing, and then find a qualifying asset, though this would likely involve multiple simultaneous transactions. In the meantime, he really has to look to untangling once and for all sources of conflicts of interest.

As they say, you can’t have your cake and eat it too.

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